Derik Sutton:
The first answer they say is like, "Yeah, you can apply for merchant services." You're like, "Well, what's merchant services?" "Well, like if you have a minimum balance with us or history and you can pay 2.50 a month for this terminal. We give you this physical thing." Then you're like, "Well, I'm like a consultant. I travel around or I go mow yards. I'm a contractor. How do I plug the physical thing into my truck?" They're like, "Well, it's really not built for you." "Okay. Well, how can I accept payments online?" "Have you tried PayPal?"
James Robert Lay:
Greetings and hello. I am James Robert Lay and welcome to the 94th episode of the Banking on Digital Growth podcast. Today's episode is part of the Exponential Insight series, and I'm excited to welcome Derik Sutton to the show. Derik is the VP of marketing at Autobooks, where he is working to help financial brands understand how to best serve the SMB market. Welcome to the show, Derik.
Derik Sutton:
Hey James, Robert. Great to be here, man. It's been too long.
James Robert Lay:
It has been too long. And this is actually a great followup to episode number 93, where we had the conversation with Karen Moynihan over at Boss Insights about how financial brands can use digital to create value for small business. That's also one of mine and then Ron Shevlin's, Top Opportunities for Financial Brand Growth in 2021. In episode 57, he noted this. I discussed this personally in episode number 55, framed around the Top 12 Digital Marketing Sales Trends for Financial Brands in 2021. Before we get there, what is something that you're excited about right now, either personally or professionally? What's good?
Derik Sutton:
Man, that's a good question. Personally and professionally?
James Robert Lay:
Yeah.
Derik Sutton:
Personally, I'm loving the fact that things are opening up. Kind of big time family vacation plan this summer. So personal things first, I can't wait to go. We're going to Hawaii. It's the wife and I's 20th anniversary. We always said that on the 20th, we're taking the whole family to Hawaii, because that was like our jam before kids. We want our kids to experience that. That's what I'm looking forward to on the personal side more than anything, as you can imagine.
Derik Sutton:
On the work side, man, like small business is hot.
James Robert Lay:
Yes it is.
Derik Sutton:
Thankfully for you, as a small business owner, thankfully it is in banking, because for far too long, it's been cold. Ice cold and like businesses have been left out and underserved and consumers got all the shine with neo banks and kind of got the gloss and the PFM and all of that. Then commercial and treasury was always white gloved and handled through extensive branch networks and well taken care of there. Business owners were kind of left fending for themselves and they weren't quite fish nor fowl. Not quite consumer, not quite treasury. They kind of just found themselves kind of wanting inside of banking. I'm happy that they're getting their shine and we're helping out.
James Robert Lay:
That's one of the reasons why I listed this as a top 12 opportunity for growth in 2021. I think we'll see this trend over probably the next two to three, five years, because it's like anything. We're starting this, we're going to get some groundswell behind it thinking about Hawaii, it's like a wave. The wave is just starting out and we're going to be able to ride that wave.
James Robert Lay:
Happy anniversary by the way. 20 years.
Derik Sutton:
Thank you.
James Robert Lay:
My wife and I, 15 years this year and we're not going to Hawaii, but we're actually going to Wimberley, Texas. We're going out to the hill country-
Derik Sutton:
Nice.
James Robert Lay:
... and doing a little glamping. There's a new place called Spoon Mountain. Highly recommend it to anyone listening. They brought in three safari tents from South Africa and set it up on their property. Beautiful place, beautiful experience. I can't wait to go in a couple of weeks. All the best to you and your family as you're heading out to Hawaii this year.
Derik Sutton:
I guess we need to start at a travel tips podcast coming up here. You and I can just like riff on this, it sounds like.
James Robert Lay:
We definitely could. Because my wife and I... My first time, believe it or not, out of the country, I was 24. It was our honeymoon. We got married and we went down to St. Lucia for our honeymoon and stayed at a little boutique resort called Ladera. Got to remember, this was 2006. I remember doing some... I wrote about this in the book, doing some exploring of where we're going to stay. Our dream was to go to Bora Bora. So being newlyweds, we didn't make it there. We actually made it there in 2010 for our first baby moon.
Derik Sutton:
Nice.
James Robert Lay:
But 2006, newlyweds company was getting started up, we went to Ladera and St. Lucia and had a fantastic experience. We started traveling two to three times a year. Then we had kids and started taking the kids. Then once we had our third kid, I'm like, "You know what? We're at the pause button on the travel." Our last trip was-
Derik Sutton:
[inaudible 00:05:20].
James Robert Lay:
Yeah, go ahead.
Derik Sutton:
[inaudible 00:05:21] the glamping. That's the thing, right? You go from Bora Bora to glamping in Wimberley. That's just the role of a parent.
James Robert Lay:
It is. Life becomes much more, I think, simplified. Our last trip was Valentine's day 2020. We picked the kids up from school and we went out to Disneyland, California. I'm so grateful we did when we did, because the world's shut down about two weeks later. But we made a tremendous amount of family memories together there.
Derik Sutton:
Dude, that's awesome. One more interesting travel anecdote story tailoring off that. Because our last or like simpatico, we were scheduled to go to Disneyland the week of like the whole shutdown thing. We were basically on our way and boom, like you said, at least you got it in ahead of time.
James Robert Lay:
And as you and I were talking before, we were both in Galveston, Texas-
Derik Sutton:
The same weekend.
James Robert Lay:
... the same time, same day, probably within a couple of miles of each other. So we definitely, we needed that travel podcast.
Derik Sutton:
We do.
James Robert Lay:
But I'm going to come back to talking about embedded banking. Thinking about embedded banking, the work that you guys are doing over at Autobooks. What is embedded banking? Let's start there for the dear listener with a definition. Because I think we'll use that for some context into today's conversation.
Derik Sutton:
Yeah, sure. I'm going to go into the topic of embedded banking and then I'm going to transition to embedded FinTech and I'll kind of like pull those two together.
James Robert Lay:
Cool.
Derik Sutton:
Embedded banking is this whole movement of software-as-a-service companies. Think about generally available applications to consumers, that then have banking services integrated or embedded within them. Whether that be a bank account, whether that be payments, whether that be integrated lending. Think about a non-traditional banking entity, providing something of value to an end consumer through an app, through a website, but having banking integrated or tied into that very directly.
Derik Sutton:
So what happens is, the reason for this movement, James Robert, is because if you look at the valuation of software companies and their ability to basically monetize a user base, it's capped out by their total addressable market, times the monthly software revenue they're going to charge and then what rate of penetration they get on that addressable market. That's software-a-service business, that's the revenue model and that's where they're judged from a valuation perspective.
Derik Sutton:
The minute those companies plug in payments or banking, the valuation and the opportunity goes up significantly. You take every existing user, you can then monetize them four to five times more, just on your existing user base, by plugging in payments or plugging in banking. That's why the Airbnbs of the world, the Uber's of the world, the beautiful Chick-fil-A app and all of these companies that have designed consumer experiences around what they have to offer, integrating banking, payments, lending capabilities, because it increases the overall value of the service offering, the revenue, the valuation of the company, so forth and so on. That's embedded banking.
Derik Sutton:
Now if embedded banking is true, and it is, it's a trend it's not going away. If embedded banking is true, where you can go out and build a product flywheel and deliver a solution of value to an end consumer, and then in that flywheel, you take from, "I want to make it really convenient and easy for somebody to order food on the go," then the next thing that's natural to that is, "Oh, I might as well go ahead and capture the payment and then add loyalty rewards, et cetera." That's a product flywheel in SaaS. If that is true, then the inverse can be true as well. That's what I call embedded FinTech. Ron Shevlin has been riding on that here recently as well.
Derik Sutton:
So the inverse is saying, "Okay, I'm a bank or a credit union, I have a customer base. I have a TAM, a total addressable market of customers. I have products and services integrated inside of what I offer as a financial institution. I basically have the ability to create almost like a checking flywheel or an account flywheel for an end consumer. If I look at embedded FinTech as something that I can plug into my banking product, my flywheel, the inverse is true for financial institutions as well.
Derik Sutton:
Our hypothesis is, "Okay, I'm a financial institution. I have small businesses, small business checking account. What's the next natural thing that a small business needs within that checking account?" Well, they need the ability to accept payments and execute bill payments and reconcile the transaction. Maybe get access to a P&L statement or what have you. Well, if those things are true and likely that the business owner needs, then banks should be able to embed FinTech services into their offering and deliver even more value to their addressable market.
James Robert Lay:
I like that idea, adding value, exponential value. And the idea of the flywheel, I can't help but think about HubSpot and how HubSpot with SaaS, software-as-a-service, they started out in marketing automate... It was actually more blogging. Then they added some marketing automation. Then they added the CRM, then the CMS, and then the service component. Now they just added the operations component. And it's adding exponential value along the way.
James Robert Lay:
Had some really good conversations about banking-as-a-service with Christopher Danvers in episode 88 with Nathan [Bomeiser 00:10:32] over in episode 79. When I think about this idea of the flywheel, specifically for business services, what might be some of those specific opportunities to really get embedded deeper with a small business or mid-sized business relationship?
Derik Sutton:
I could go really deep on this one and wide. This is where the heart of the matter is.
James Robert Lay:
Sure.
Derik Sutton:
Probably the number one neglected capability inside small business banking today, is helping business owners accept payments from customers. As an industry, we're obviously very well equipped and have since the dawn of banking offered accounts. The ability to ledger and keep track of a balance. Then over time, we've made it to where you can pay bills and move money very simply and easily, like added in bill pay, transfers, external transfers, capabilities like that.
Derik Sutton:
But when it comes to the deposit, we've always kind of rested on our laurels in banking, of really being related to like, "Okay, what deposits take place in the branch?" We're building around that cash deposits, check deposits. So that was really how businesses got capital into their account for the most part. I'm talking about small businesses and micro businesses. So really the way to deposit funds as a business owner for a small business owner with the bank is cash or check.
Derik Sutton:
Now there are capabilities to do ACH batch entries and wire management and positive pay and all those things. But that really applies to a whole different category of business customers. The next most logical thing is saying, well, if there's an evolution of banking services and how people transact today, which is moving to digital, so now even though a person comes to my house and mows my yard, the request for payment is definitively moving from in-person to online. Digitizing of invoices, requesting payments virtually, Venmo, PayPal, Square, et cetera.
Derik Sutton:
If that's true, then banking's next evolution of what's the next thing inside that checking flywheel, making it easy for small businesses to accept online payments, has to be in there. If not, then all you're doing is becoming the record of entry. You're making it easy to let people move money out of their institution, i.e. bill pay, you support some level of digitizing an old vestige of yesteryear, which remote check deposit capture. You enable them to do that.
Derik Sutton:
But when it comes to how the world is moving and where transactions are moving, specifically from a depository standpoint or receivables, that's really not included in traditional banking services today. Which is ironic. So what's happening, is companies like PayPal, square, Shopify, QuickBooks, everybody else is recognizing that. They're recognizing this flood of a move to e-commerce and digitizing of receivables and payments. They made it real easy for businesses to onboard into their service.
Derik Sutton:
Then the second, like literally the second that I onboard in the PayPal, Square, or what have you, they are looking to disintermediate my banking relationship. They're sending me push notifications of like, "Hey, keep your money here." Don't wait days of delay to transfer your money back to your bank. Oh, you want it in real time, here's the fee. Hey, why do you need a bank account? Here's a real-time business debit card you can use right now, spend out of your account. Here's access to a line of credit, instant line of credit over time." They're immediately looking to disintermediate.
Derik Sutton:
Then the ironic thing about all that, is you call the frontline staff of a bank and you say, "Hey, I'm a small business owner, I've been with you guys for several years now. I have a lot of customers asking if they can pay by credit card or debit card, can you help?" The first answer they say is like, "Yeah, you can apply for merchant services." You're like, "Well, what's merchant services?" "Well like if you have a minimum balance with us or history, and you can pay 2.50 a month for this terminal. We give you this physical thing."
Derik Sutton:
Then you're like, "Well, I'm like a consultant. I travel around or I go mow yards. I am a contractor. How do I plug the physical thing into my truck?" They're like, "Well, yeah, it's really not built for you." "Okay. Well, how can I accept payments online?" "Have you tried PayPal?"
James Robert Lay:
Yes.
Derik Sutton:
Literally. We do secret shopping.
James Robert Lay:
And they lose the relationship. Or it's like death by 1,000 cuts. I had this exact conversation. It's a great echo to some of the perspective that I was talking with Karen in episode number 93, because I talked about, for example, QuickBooks. I talked about Shopify. I talked about, for example, Gusto. Gusto runs our HR over here and now they're offering financial services, almost direct to employee, even from a... It's just that it's so fascinating to see the split.
James Robert Lay:
And you're right. PayPal, Square, we begin to lose that relationship. How can we overcome some of that? What holds financial brands back from making a commitment to say, instead of, "Have you heard of PayPal? Have you ever heard of Square? Don't go there. We can bring this here." What holds some of that thinking back or that action back from saying, "Well, here's a path forward for you."
Derik Sutton:
I think that comes back to the definition of embedded FinTech and why that's important moving forward, quite frankly. What holds a lot of financial institutions back, is let's be clear, a lot of your strategic roadmap is built by the vendors that you partner with. It just is. If vendors don't have the right solution or they don't have the capability for you to plug in, you're a bit hamstrung in what you can do and go to market with.
Derik Sutton:
Where I think embedded FinTech becomes important is because these larger core and digital vendors are recognizing. I give them all the credit. I came from that world and it's changing for the good. They're recognizing that they can't possibly build and deliver everything for every FI and for every use case.
Derik Sutton:
So companies like Q2 are creating their marketplace, so that FinTech companies can say, "Go to Q2." Q2's marketplace can do integration into their SDK and deploy their financial services app, out to the wider base of marketplace customers. Other digital banking providers are doing the exact same thing now. So as a FinTech company, like a FinTech that wants to partner with banks, what we want to do is embed not only the technology inside of the FI, because that's one piece of it. Product procurement, technology integration, compliance, safety, security, making sure that things are on the lights are on and people can use the app. That's step one.
Derik Sutton:
Step two is saying, "Okay, but now we need to go to market."
James Robert Lay:
Yes.
Derik Sutton:
"Now we need to educate people on this new capability and feature that we have." You preach this, but for whatever reason, financial institutions, they aren't aggressive. I'll just say, they're just not aggressive enough with that. It's almost as if they feel like they're going to offend their customer base by telling them about the services that they offer.
James Robert Lay:
I was going to ask, like... I agree because it's a very passive, reactive stance that financial brands take in the marketplace. And I'm advocating, take a proactive stance. Lean into people's problems, lean into pain points, offer the cures, the prescriptions. But what holds them back from taking that proactive stance moving forward. Because I think you use the word, "They're afraid they're going to offend someone." Why is that?
Derik Sutton:
I think it's a little bit of, it's a vestige of, let's just say it's like the DNA of banking almost. To where they're so used to doing business in-person. In-person conversations. So when you're in person, sometimes selling is a little bit awkward, quite frankly. If that's in your DNA and how you've built a company and an organization, you kind of build around like, "Well, we're their bank. They don't want to..." I hear this pretty often. Like, "They don't want to just hear from us about every little thing. They just want to know that their account is in good standing. Everything's working. They don't want to hear from their bank on a regular basis."
Derik Sutton:
I'm like, "You know what? I talk to a lot of business customers and they kind of do. They actually really do. They want to know how you can help them. Because they're out there trying to piece together all these solutions and figure out how to just do business more efficiently." Then you're in the boardroom saying, "You know what? I don't think we need to send that many marketing messages out to our customer base because they don't want to hear from us." I think we're just like ships passing in the night a little bit.
James Robert Lay:
I agree. To that point, episode number 83, with Marcus Sheraton, a great book, They Ask, You Answer.
Derik Sutton:
Yeah, that's great.
James Robert Lay:
And it really flips the perspective of, it's not about promoting or marketing from the old world sense of product pushing, it's what we teach, which is to help first, to sell second. That ideology, that belief system has to be owned from the top down and from the bottom to the top. Otherwise, like you said, it's kind of ships passing in the night and we dabble in this a little bit.
James Robert Lay:
When you look at this idea of digital communication, the concern is overly communicating. You talked about doing secret shopping. We're doing digital secret shopping as well for financial brands. A lot, probably more right now on the consumer side, have started to move over into the SMB space slightly as I think more awareness has gained into the opportunities. But I'm going to give you some perspective for the dear listener, when it comes to this. Recent study, bottom of the funnel, secret shopping, looking at the application on the consumer side, the same could be done on the SMB side.
James Robert Lay:
But on the consumer side, we looked at a credit union, we looked at a local competitor of this credit union, then we looked at Chime. And we had real consumers go through the application process on the credit union side and the local competitor side, normal 60% to 70% abandon it because of some friction and frustration. They're like, "We're not going to move forward." Chime, 100% conversion rate on it.
James Robert Lay:
Number two, we did a 30 day followup to the experience doing memory recall. "Out of these three digital experiences, which communicated with you? What is top of mind right now?" 100% definitively said, "Chime." We said, "How many pieces of digital communication did you receive, i.e. email tax, et cetera?" "On average, nine to 11 email communications in the first 30 days." "Do you feel that was annoying or frustrating?" "No." "Why?" "Because they were guiding us to the next step." "Here's what to do. Have you considered this?" So it was more education, learning about the product diving deeper. And so nine to 11 pieces of email communication, no one found that annoying and it created the top of memory recall. Why? Helping first, selling second.
Derik Sutton:
Okay. Let's go deep on this, because this is like you're... Once again, we're in this lane, man. We're here.
James Robert Lay:
Let's jam.
Derik Sutton:
When we do embedded FinTech, like I said, it's the product and it's the go to market. The go to market implementation is basically marketing-as-a-service. It's an email automation campaign. It's outbound calling and education. It's frontline staff training. And it's all to basically put out what you just said. So our email automation system has a SIN of close to 11 emails in that same 30 day period. But they're written from the perspective of interviews from the businesses, understanding their pain and what they're trying to accomplish in their daily workflows and writing these emails in a way that resonate with the business owner, that don't communicate bankanese.
Derik Sutton:
I'm going to back up one second. There's supply side marketing and there's demand side marketing. Supply side is, "Hey, these are all the things we can offer you. This is the bullet pointing list of features." My kind of running joke is, you go to a small business checking account and it's like, "Here's all the things we're going to charge you for, and here's how to avoid those charges." What a way to market. Like, "Here's all your fees. Oh, but you can avoid these fees, if you do these things all related to money." Basically you're saying, "Okay, here's like this kind of bait and switch kind of marketing that I'm putting in front of you. Oh, by the way, if you want to make sure you avoid these fees whip out a spreadsheet and start doing the math and let's kind of see where we're at."
Derik Sutton:
Versus demand side marketing. Demand side marketing says, "Okay, what's coming in from the customer's perspective? How are they looking at the account? What is their daily workflow? How are they going to resonate inside of this service offering? How can you create it to say the customer has demand for your service?" If you kind of look at Square, doesn't do a great job at it, but they do an okay job on demand side.
Derik Sutton:
If you're a banker and you want to go kind of like, "What am I looking at?" Go look at your small business checking account feature list, and then go to Square and go to banking services or financial services or whatever they call it. They have things like, "Move money." Like I need to move money. How do I need to move money? I get paid in person. I get paid remotely. There are three or four different options. But they're looking at it from the perspective of, "If I'm a business customer, coming in and looking at these services, how do I relate to it?" That's the demand side marketing.
Derik Sutton:
All of our demand marketing goes out and it says, "Okay, from the place of the business owner, we literally have an email that the subject line is, "I didn't know payments would be brain surgery. Or I don't want payments to be brain surgery." Why? Because that's what customers told us. Understanding how to stitch together a system of requesting payment, getting paid, reconciling the transaction, keeping up my books, feels like brain surgery. Over and over, it kept coming up.
Derik Sutton:
So you know what we write? An email that says that.
James Robert Lay:
Yes. Because-
Derik Sutton:
And you know who loves it? Business owners.
James Robert Lay:
The end user.
Derik Sutton:
And you know what? They love it. What happens is, they come back and I love to show this to banks. They're like, "Well, you guys send a lot of emails." They're like, "Yeah, but you know what happens when we send emails? Concentrated shopping." It's what I call it. Concentrated shopping. If they just log into digital bank, if you just wait for the world to come around to you, I'm either going to walk into the branch and you may or may not tell me about this. Or I'm going to log into digital banking, you may or may not serve me an ad on this. Those are ad hoc shopping events. It's like people are walking through this busy mall every day and they may walk by the window and they never really kind of like look at what's going on. You hope that they kind of come into your store. And have an intentionality into buying something.
Derik Sutton:
What email marketing does, even a little bit of outbound calling, is it creates a concentrated shopping event. It basically says, "Hey, here's what I have to offer," into an email inbox. And the subject line is basically looking into the window. Then if they decide to open up the email, that's them deciding to go in and shop. What happens is, you force everybody to make that decision about, "I'm wither going to go in and shop, or I'm not." If they shop, like I do, sometimes it takes them multiple times to go into the store to make the decision.
Derik Sutton:
So what we see in our email system is, businesses will come back to the email 30 times, 20 times, 15 times. Then we also, we write these longer form conversion copy written emails. Because they tell that story, they take them through that journey. We have 75% read rates on our emails, which is unheard of.
James Robert Lay:
No, exactly.
Derik Sutton:
They're coming back and they're like, "Dude, you're reading my mail here because I have this pain. I need to read this and come back to it." Because business owners, small business owners are super busy. You're busy. Your calendar's booked from 8:00 to 5:00. You have to like come back and read this stuff late at night? That's what happens.
James Robert Lay:
This is brilliant. Two things. One, marketing-as-a-service, if you're taking the pain of the FI off from having to go to market, and you're using this expertise in this knowledge that you've gained through research and insights, it all comes down to really, I think, two things. One, what we call human centered growth, i.e. human centered design. Then number two, the consumer persona, the empathy map, those questions, concerns, those hopes and dreams and playing off of those.
James Robert Lay:
You're right, this idea of brain surgery, using the words that you hear over and over and over again, and addressing that. It's funny because when I make these recommendations to financial brands of like leaning into people's pain points, for example, getting a business loan doesn't have to feel painful.
Derik Sutton:
Totally.
James Robert Lay:
They're like, "Why do we want to.. That's negative, it's a negative connotation." I say, "No, because you're literally through that word, you're empathizing with that person's pain."
Derik Sutton:
Totally.
James Robert Lay:
You're like, "No, it doesn't." So I think this is where the training and education, there's a tremendous opportunity. And it's not a massive mindset shift, it's just almost like just looking at the world slightly different, stepping in to the business owner's shoes. Because you never understand someone, until you walk a mile in their shoes. Then you're keeping that attention. They're coming back 25, 30 times, looking at that email. Now you're hitting into a blue ocean opportunity for financial brands, both on the consumer, as well as on the business commercial side.
James Robert Lay:
That's the consideration stage of the buying journey. Because there's a lot of information that goes in, there's a lot of decisions. We're actually starting to explore what is called Kolbe, K-O-L-B-E Kathy Kolbe, and how her research can help inform marketing and sales behavior. Because what Kolbe looks at is four areas of the brain. It's actually the conative part of the brain. Because you have IQ, which her father Wonderlic studied, with the Wonderlic exam. There's that. So that's intelligence.
James Robert Lay:
Then you have the emotional side of the brain where you get like DISC and Myers Briggs. Then you've got Kathy Kolbe, who's been studying the conative of part of the brain, which is what I would typically say is the OS, the operating system of the brain. There's one of four areas there. One of them is called fact-finder. How much information does someone need before they feel confident enough to make a decision to move forward with?
James Robert Lay:
Then when you think about entrepreneurs and business owners, they tend to trend high in another area called quickstart. So this is something too that I think could help maybe make some informed decisions at an internal level, because now you know more of the operating system of the business owner and how they're consuming information, how they're making decisions. And then use that to support them, to guide them forward on these journeys. Fascinating stuff, man. I'm excited for you guys.
Derik Sutton:
Yeah, that's right. Man, that's some cool stuff. The operating system, the brain, totally, that resonates with us big time. I think the thing is, what I always try to communicate to financial institutions is, "Yeah, this may feel weird, may feel awkward from what you've traditionally done, but if they came into your branch and you had a conversation, our emails actually communicate in a way that you would as a person. It's not just like a stock image with three or four features, then... My kind of joke is like, "And 75% disclosure." That's the average email marketing message. It's like, "Most of the content here is like legal."
Derik Sutton:
Which is okay, like we're banks. We need to do that. I'm not saying to do this on an uncompliant or unsafe way. It's just saying, "Meet the user, the customer where they're at. Help them make progress against your financial institution." It's okay to be communicative with them. We show the results. The people opting out and unsubscribing is super, super low. We hear from customer after customer like, "I never heard from my bank, until they had Autobooks then you guys reached out. Man, you hit me at just the right time." That's the point. That's the point of like good engagement and marketing, is you want to hit the person at the time that they need it? That's the reason to be persistent, quite frankly.
James Robert Lay:
That's where the proactive nature of all of this comes. Because I kind of laugh, someone on LinkedIn today, I had messaged them just to check in to see what was going on. They replied back, they're like, "Do you have a microphone in my office? Because we were just talking about..." what I'd reached out to them for. I kind of chuckled and I sent them a Loom video. And I said, "No microphone. But a lot of it is just being aware of like the digital buying signals, and tracking that and then use then utilizing that to make those informed offers."
James Robert Lay:
I want to ask, thinking about everything that we've talked around about embedded banking, embedded FinTech, the SMB marketplace, what is a common belief that other leaders in this industry have, financial brands that you might just passionately disagree with? What might be holding them back here?
Derik Sutton:
Yeah. I would say, we've talked about it a little bit. The marketing side, but like positioning of their products, I think is one of the biggest misses. We've actually gone through recently, so I'll kind of give you a little heads up. But we've been going through a learning exercise with a lady named April Dunford, who wrote a book called Obviously Awesome. She's basically a positioning expert.
Derik Sutton:
April's working with us to help us better understand how financial institutions should position their products. Specifically, small business checking. If I look at the landscape and it's something I've been looking at for the past year, if you look at account listings and features and how financial institutions describe their products, it's largely undifferentiated.
James Robert Lay:
Yup.
Derik Sutton:
They're effectively all the same. So I think what's happened in this whole movement to digital, is we're very supply side oriented. Meaning that, "Here's all the things that we can offer, let's figure out a way to get all those things up on a website and list it out for people and hope that they basically find something that they need." So little things where like they go to small business checking and we list out feature names, really kind of built from what we call the product inside core banking, back in the day. Eventually, it made its way into digital banking.
Derik Sutton:
It makes little to no sense to the average business owner, if you ask them. Like "What's positive pay mean?" Do you know what positive pay means? How long have you been in this industry?
James Robert Lay:
That's bankanese, man.
Derik Sutton:
Yeah.
James Robert Lay:
It's bankanese. It's like LTV. We've even seen like APY throw people off. Because they're like, "They're going to charge me a percentage for..." "No. We're going to pay you money to keep your money here." So you're right. April Dunford, we got to get her as a guest on this show.
Derik Sutton:
Yes, you do.
James Robert Lay:
Because I think that'd be a really fun conversation. I'm going to give a shout out to Louisiana Federal Credit Union, because they've done a tremendous job. They've been in our program for probably five or six years. We've had a couple of their team members as guests on this show, just talking about their experiences. But when it comes to positioning their business products, they've actually done something to where they have built and developed what is called, The Complete Guide to Exponential Business Growth.
Derik Sutton:
Wow.
James Robert Lay:
It is a meaty, subject matter book. It's an ebook you download and it's positioned as, confidently grow your business in Louisiana. There's some good SEO love to that.
Derik Sutton:
How cool is that?
James Robert Lay:
And they're doing a fantastic job moving forward. Derik, this has been a lot of fun. I want to get really practical here at the very end. Because I think all massive change and transformation begins with one small, simple step, one micro commitment, that someone can make listening today.
Derik Sutton:
Sure.
James Robert Lay:
What would that small, simple step or micro commitment be, that you would recommend them move forward with?
Derik Sutton:
Sure. I would just say recognize that small businesses are not a multi-employee shops, don't necessarily have the needs that you hear from the common business owner that you served through ACH batch origination, wire management, treasury. The way you used to think about small business banking, I think if you actually look at the data, 31.7 million small businesses in the US-
James Robert Lay:
Big opportunity.
Derik Sutton:
... 81% don't have any employees. Single sole proprietors. In addition to that, there's a growing number of independent workers, 41.1 million independent workers. If you think about that category and they live largely between retail and basic small business. The one thing to walk away from is, I need to learn about small businesses. I need to understand their pain points and how digital transformation for them, is impacting their banking relationship.
Derik Sutton:
Because last year, we had a 45% adoption of e-commerce last year in 2020. 45% growth. It's been year over year, 15%.
James Robert Lay:
Wow.
Derik Sutton:
Last year, three times as many people moved into e-commerce and moved away from traditional branch and retail shopping. What does that mean? That is a huge shift in technology behavior, specifically with payments that is not going away. It will not revert. Business owners had to... I'm a storyteller so, San Antonio, Texas, there's a small consulting company that does training for kiddos with reading disorders, dyslexia and things like that. They used to go in person to meet with the kiddos. They would do the therapy session and then they would collect a check from the parents. They had three or four consultants that would go around the community and do this. The next day, when the people went in to check in the office, they'd bring the check. The office manager would take the check to the bank later that day, get it deposited. That was their workflow. Right?
James Robert Lay:
Wow.
Derik Sutton:
COVID hits. They can't go in person. Right? What do they have to do? Like you said, they're entrepreneurs, they have this operating system like, "We'll have to figure it out." They started setting up Zoom sessions with these parents and the kiddos, and they did their therapy sessions there. But then what was broken?
James Robert Lay:
The payments.
Derik Sutton:
The way they got paid. Thankfully for them and us, Autobooks was installed in their financial institution. They adopted our solution. They now send digital invoices to the parents to get paid. Okay? But it gets better. Now their business model has changed. Because they said, "You know what we found, we can do more sessions per day doing it this way. We still have the same relationship. Once a month we go on person and meet with the kiddos and do a once a month thing. But the other three sessions are all digital. We've now signed up all these parents for auto-pay."
James Robert Lay:
Wow.
Derik Sutton:
"We don't have to worry about the trip to the branch." This year reinvented how... They may not have ever changed that. They may not have recognized that was broken, quite frankly.
James Robert Lay:
No.
Derik Sutton:
But last year changed for people the way they accept payments and they're not going backwards. They're going to find ways of like, "Oh, this is more efficient." The one thing, financial solutions better understand business customers, what they're going through. Secondly, they need to get paid. I haven't met a business out there that doesn't need to get paid. You can either be at the forefront of that, or you can not. There will be winners, there will be losers.
James Robert Lay:
Cash is king and maybe soon to be, crypto is King.
Derik Sutton:
There you go.
James Robert Lay:
We'll see where that goes. Derik this has been an absolute blast to have this conversation. Thank you so much. I'm grateful for the insights that you've shared, the knowledge that you've shared. If someone wants to continue this conversation and discussion, what is the best way for them to reach out and say hello to you?
Derik Sutton:
Just email me Derik D-E-R-I-K. Forgive my parents for the weird misspelling. derik@autobooks.co or Twitter or LinkedIn on Twitter @DerikSutton.
James Robert Lay:
Man, I feel you with that name, because people are always like, "Is it James? Is it James Robert?" Nope, it's two first names. When I was in trouble at home, it was James Robert Williams.
Derik Sutton:
There you go.
James Robert Lay:
I feel you, man. Hey, Derik, thank you so much for joining me on another episode of Banking on Digital Growth. This has been fun.
Derik Sutton:
Awesome. Thanks for having me.
James Robert Lay:
As always, and until next time, be well, do good and make your bed.
